Friday, March 21, 2008

Housing Bubble Hyderabad?

According to students here at ISB, the rent to price ratio in Hyderabad is between 2 and 3 percent. Mortgage rates are 12 percent; mortgage interest is tax deductible here, and the marginal tax rate for most buyers is 33 percent, so the after-tax cost of capital is 8 percent. Add to that maintenance costs and a risk premium on housing equity, and the housing market needs to appreciate something like ten percent a year to be sustainable. But of course this will not happen forever.

One surprise--in the formal market for housing in India, homebuyers can get mortgages with LTVs of up to 90 percent.

6 comments:

Anonymous said...

So you have to wonder why savers are loaning their hard earned money to people who will only repay if an unsustainable event occurs (10% annual appreciation in perpetuity)?

Anonymous said...

What are driving the prices up?, the cost of land, construction material, labor rates, Builders mark-up.

I do agree LTV 90% is scary with rent to price ratio less than 3%, unless some one has permanent job and able to pay the mortgage.

Anonymous said...

Here is my calculation: you have to factor in inflation. The borrower's real after tax cost of capital should be used to discount the expected real after tax free operating cashflows.

You can do the math using 5% average inflation, 7% (14% nominal rate - 5% inflation - 2% tax effects) after tax real cost of capital.

on the numerator:

Your current period after tax cash flow yeild of 2.5% with a real growth rate in operating cashflow = 4%(estimated to approximately equal growth in factor labour productivity growth; economic justification for this forecast is that real wages would grow in line with productivity per unit labor per unit capital)

so based on a back of the envelope calculation:

value/price = 2.5(1.04)/(7% -4%) = approximately 85%.

Therefore, assuming the inputs are correct, there will be a drop of, say, 15% in real terms. So depending on how long it will take for the correction to occur, the nominal price reduction and the resultant pain can be estimated. If history is any guide, one should expect a pessimistic mood possibly spiked with political unrest. Market once again failed to use the right discount rate.

hyderabad said...

Real estate market is very slow in hyderabad. around 35,000 flats are for resale
by banks dueto non payment of emi by the customers. by march 2009 few more thousand
flats will come for resale. prices are down by 30%- 40% .it is the right time to buy
a flat in hyderabad.
Hyderabad Realtors

Anonymous said...

^^Thanks!!

婚前徵信婚姻感情大陸抓姦外遇抓姦法律諮詢家暴婚前徵信尋人感情挽回大陸抓姦離婚工商徵信婚前徵信外遇抓姦感情挽回尋人大陸抓姦離婚家暴工商徵信法律諮詢跟蹤工商徵信婚前徵信感情挽回外遇抓姦法律諮詢家暴尋人大陸抓姦離婚大陸抓姦外遇尋人家暴工商徵信法律諮詢家暴感情挽回大陸抓姦外遇婚前徵信離婚尋人工商徵信外遇抓姦法律諮詢家暴婚前徵信大陸抓姦尋人感情挽回外遇抓姦婚前徵信感情挽回尋人大陸抓姦工商徵信法律諮詢離婚家暴工商徵信外遇抓姦法律諮詢家暴婚前徵信尋人感情挽回大陸抓姦離婚婚前徵信工商徵信外遇抓姦尋人離婚家暴大陸抓姦感情挽回法律諮詢離婚感情挽回婚前徵信外遇抓姦家暴尋人工商徵信外遇抓姦法律諮詢家暴婚前徵信尋人感情挽回">徵大陸抓姦離婚婚前徵信工商徵信外遇抓姦尋人離婚家暴大陸抓姦感情挽回法律諮詢

gaohui said...

You will not have ed hardy clothes to worry about any Christian audigier discomfort, and best of all; most are ed hardy shoes designed to fit your body as the ed hardy outlet little bundle of joy grows allowing ed hardy Bikini you to wear the maternity clothing more than ed hardy hats once.The development of holiday maternity ed hardy swimsuits clothing has coincided with the changing attitudes of ed hardy clothing women regarding their bodies. Today's ed hardy glasses holiday maternity fashions are ed hardy trendy, stylish and sexy, fitting today's ed hardy iphone cases fast-paced lifestyle Now, women ed hardy dresses are proud to show off their baby bump while wearing ed hardy Jackets striking and classy maternity clothing.